Why is the USA Government bailing out the banks from defaulting mortgages ?

Question

these banks knew these people couldn't afford these houses if they looked at the price and the salaries of the people. Why is my tax dollars going to banks which are already rich ?

Answer 1

To keep the banking system from total collapse. Without this bail out, the banks don't have enough cash on hand to cover their deposits, and the banks will fail.

We are in very serious trouble.

Answer 2

We are a nation of credit, and this situation is the result of such. The tax dollars that we are having spent are going toward this because the stock market would take a direct tumble, causing many who invest, via mutual funds or direct investment, to lose money. The housing market may never be the same after this, by that I mean additional legislation could regulate the way mortgage companies do business.

Answer 3

It's not just the US government. Financail entities in Europe have pumped billions into the market to prevent a huge credit crunch. This was brought about by the defaulting of many of the sub-prime mortgage loans in the US. The world economy is in a precarious position at this point and needs an influx of cash to prevent a potential collapse .

Answer 4

Remember the fall of Wall Street in 1929? Americans spent more money than they made. Just happened again in 2005. If you want to blame someone, blame the greedy California investors that come in, drive the housing market up, then bail leaving others to clean up the mess. In order for the average Joe to be able to afford a house, banks had to come up with "creative financing". No interest loans, variable interest rates, affordable home loans with six figure balloon payments after thirty years, it goes on.

They are designed to get folks into a home in the hopes that interest rates will continue to fall, home owner will be earning more money at time of refinance, or home owner's credit will improve by time of refinance. Usually none of these things come to light, so home owner discovers he/she can no longer afford their house and it gets repossessed. Bank is now collecting houses they cannot sell, or they have to sell for pennies on the dollar. Many financial institutions are going belly up because of this. Stupid California Investors!!!

Answer 5

True, some of the foreclosures are on homes where people were greedy & signed up for more than they could afford. They were ignorant about adustable rate mortgages and balloon payments, but there was some significant portion of predatory lending. People who should have been directed toward FHA loans - a one-time only opportunity for first time home buyers to get a federally insured home loan - but instead, they were directed to lenders and mortgage brokers to ARM and balloon payment loans. I was in real estate & there were plenty of loans with no money down - years ago, you had to come up with 25% down! Can you imagine anyone buying all these $200,000 and $300,000 homes & having to put one quarter of the value down? That would be $50,000 or $75,000 down! Lenders figured out a long time ago that if you make people make tiny payments on giant balances, you'll make out like a bandit in interest payments and the borrower will never make a dent in the principal. Thus, the rich get richer and the unwary get duped. Personally, I think every loan in jeopardy should be examined to determine whether predatory lending practices were at work & in those cases, absolutely, something should be done to help the person who was caught off guard. Have you read all the fine print in your credit card contract? Or any contract - for your cable or satellite? For web sites that you want to visit but that require you to accept contractual terms? We're all at risk of being duped due to our failure to read all the fine print all the time. Really, are you going to hire a lawyer to read over contracts so you can access web sites? You probably should - or else just don't accept the terms. I realize it would be impossible to review every home loan contract - but certainly, patterns are emerging as people seek assistance from their attorneys, banks, friends, congressmen and senators. The original lenders knew these loans were horrible hot potatoes - that's why they sold them off as soon as the ink dried - the idea was to spread the risk. Whether we help out the people, we definitely are going to help out the lending institutions. I think somewhere in the middle is probably reasonable - we need business and corporations, but we need to remember our humanity as well.

Answer 6

Too easy!
The recipients of the benefits are the BIG MONEY LENDERS .
Those who bought the houses are better off anyway.
If they didn't get those mortgages, they would have been paying rent and loosing it ALL anyway.
At worst, for them it is a wash.
It is those who provided the mortgages to people who wouldn't even qualify for a credit card that stand to loose, so they are the ones who will benefit from a bail-out.
Do you think the government will allow BIG MONEY BANKERS to suffer?
By the way, much of that money came from FOREIGN investors wanting to get higher interest from their investments than they could receive in their own countries. Wealthy Koreans were (are) BIG investors in the mortgage market.
Are we bailing THEM out too?

Answer 7

It is no longer the American Dream, but the Bankers Dream. They win either way. Kinda like a CEO that fails and yet gets a muti million dollar bail out!

Answer 8

Good question, perhaps you should post this question to your Senators and Congress men/women. Our Government never really changes things, they are from the "band-aid" school, a lot of things are broken in our country, but they won't rethink the answers to the questions. This is the fault of corrupt politicians and their corporate financers, "We the People" need to take a more active role in Government in order to change what is wrong with "Our" country.

Answer 9

Because big business and the current political regime are practically one and the same.

Answer 10

Is this bush's idea of a great economy....isn't that what he said...